----

| /X/ | QUARTERLY      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934      FOR THE QUARTERLY PERIOD ENDED June 30,2009 |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------|

| /      / | TRANSITION      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 |
|----------|----------------------------------------------------------------------------------------------|

Z TRIM HOLDINGS, INC.

|   ILLINOIS                                                    |        36-4197173                               |
|-------------------------------------------------------------------------|------------------------------------------------------|
| (State      or Other Jurisdiction ofIncorporation      or Organization) |        (I.R.S. EmployerIdentification      No.) |

----

----

----

----

|                | Three      Months ending June 30, |   |   |   |
|---------------------|-----------------------------------|--------|--------|--------|
|                |                              | 2009   |   |   |   | 2008 |
| Total      Revenues | $162,960                          |   |   |   | $171,863 |
|                |                              |   |   |   |   |   |
|                |                              |   |   |   |   |   |
|                | Six      Months ending June 30,   |   |   |   |
|                |                              | 2009   |   |   |   | 2008 |
| Total      Revenues | $290,929                          |   |   |   | $238,307 |

----

ITEM 3. QUANTITATIVE AND QUALITATIVE ANALYSIS OFMARKET RISKS

----

| 1.   | As      of June 30, 2009, we did not maintain effective controls over the control      environment.  Specifically, we have not developed and      effectively communicated to our employees our accounting policies and      procedures.  This has resulted in inconsistent      practices.   Since these entity level programs have a pervasive      effect across the organization, management has determined that these      circumstances constitute a materialweakness. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | As      of June 30, 2009, we did not maintain effective controls over financial      statement disclosure. Specifically, controls were not designed and in      place to ensure that all disclosures required were originally addressed in      our financial statements.   Accordingly, management has      determined that this control deficiency constitutes a material      weakness. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| 3(i) | Articles      of Incorporation of Z Trim Holdings, Inc. (filed as Exhibit 2.1 to the      Company's Form 10-SB filed on August 21, 2000, and as Exhibit 3.3 to the      Company's Form 10-QSB filed on August 16, 2004, and incorporated herein by      reference). |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(ii) | Bylaws      of Z Trim Holdings, Inc., as amended (filed as Exhibit 2.2 to the      Company’s Registration Statement on Form 10-SB, Exhibit 3(ii) to the      Company’s Form 8-K filed on November 2, 2007, and as Exhibit 3(ii) to the      Company’s Form 8-K filed on November 16, 2007, and incorporated herein by      reference). |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.1 | Specimen      Certificate for common stock (filed as Exhibit 3.1 to the Company's Form      10-SB filed on August 21, 2000, and incorporated herein by      reference). |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.2 | Form      of Subscription Agreement (filed as Exhibit 4.1 to the Company's Form 8-K      filed on March 30, 2006 and incorporated herein by    reference). |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.3 | Form      of Warrant to Purchase Common Stock (filed as Exhibit 4.2 to the Company's      Form 8-K filed on March 30, 2006 and incorporated herein by      reference). |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.4 | Form      of Registration Rights Agreement (filed as Exhibit 4.3 to the Company's      Form 8-K filed on March 30, 2006 and incorporated herein by      reference). |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.5 | Form      of Subscription Agreement (filed as Exhibit 4.5 to the Company’s Form      10-KSB filed on April 2, 2007 and incorporated herein by      reference). |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.6 | Form      of Warrant to Purchase Common Stock (filed as Exhibit 4.6 to the Company’s      Form 10-KSB filed on April 2, 2007 and incorporated herein by      reference). |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.7 | Form      of Registration Rights Agreement (filed as Exhibit 4.7 to the Company’s      Form 10-KSB filed on April 2, 2007 and incorporated herein by      reference). |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.1 | Steve      Cohen Employment Agreement (filed as Exhibit 10.12 to the Company’s Form      10-QSB for the quarter ending June 20, 2006 and incorporated herein by      reference). |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.2 | Brian      Chaiken Employment Agreement, dated October 17, 2007 (filed as Exhibit      10.2 to the Company’s Form 10-KSB filed on April 14, 2008 and incorporated      herein by reference). |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.3 | Intentionally      left blank. |
|------|--------------------------------|

| 10.4 | Z      Trim Holdings, Inc. 2004 Equity Incentive Plan (filed as Appendix C to the      Z Trim's Proxy Statement for its Annual Meeting conducted on June 16, 2004      and approved by its Shareholders on that date and incorporated herein by      reference). |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.7 | Assignment      of License Agreement between UTEK Corporation, Z Trim Holdings, Inc. and      Brookhaven Science Associates dated March 26 2003 (filed as Exhibit 10.14      to Z Trim's Form 10-QSB for the quarter ending September 30, 2003 and      incorporated herein by reference). |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.8 | Assignment      of License Agreement between UTEK Corporation, Z Trim Holdings, Inc. and      University of Illinois dated July 9, 2003 (filed as Exhibit 10.15 to Z      Trim's Form 10-QSB for  the quarter ending September 30, 2003      and incorporated herein byreference). |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 31.1* | Statement      Under Oath of Principal Executive Officer of the Company pursuant to      Section 302 of Sarbanes-Oxley Act of2002. |
|-------|------------------------------------------------------------------------------------------------------------------------------------|

| 31.2* | Statement      Under Oath of Principal Financial Officer of the Company pursuant to      Section 302 of Sarbanes-Oxley Act of2002. |
|-------|------------------------------------------------------------------------------------------------------------------------------------|

| 32.1* | Statement      Under Oath of Principal Executive Officer of the Company pursuant to      Section 906 of Sarbanes-Oxley Act of2002. |
|-------|------------------------------------------------------------------------------------------------------------------------------------|

| 32.2* | Statement      Under Oath of Principal Financial Officer of the Company pursuant to      Section 906 of Sarbanes-Oxley Act of2002. |
|-------|------------------------------------------------------------------------------------------------------------------------------------|

----

----

| Z      TRIM HOLDINGS, INC.                                                                         |   |                                                                                                                                                                |   |                                                                                                               |
|----------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------|
| CONSOLIDATED      BALANCE SHEETS                                                                   |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| JUNE  30, 2009                                                                           |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| ASSETS                                                                                             |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                               |   | (Unaudited)                                                                                                                                                         |   |                                                                                                               |
|                                                                                               |   | 6/30/2009                                                                                                                                                           |   | 12/31/2008                                                                                                         |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| Current      Assets                                                                                |   |                                                                                                                                                                |   |                                                                                                               |
| Cash      and cash equivalents                                                                     |   |  $               43,999                                                             |   |  $            592,696                             |
| Accounts      receivable (net of allowance of $10,067) at June 30, 2009 and December 31,      2008 |   |                   69,969                                                  |   | 206,231                                                                                                            |
| Inventory                                                                                          |   |                 158,612                                                             |   |                 182,971            |
| Prepaid      expenses and other assets                                                             |   |                 137,927                                                             |   |                   86,445 |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| Total      current assets                                                                          |   |                 410,507                                                             |   |             1,068,343                                  |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| Property      and equipment, net                                                                   |   |             3,884,857                                                                                   |   |             4,061,436                                  |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| Long      Term Assets                                                                              |   |                                                                                                                                                                |   |                                                                                                               |
| Deposit      on Fixed Asset                                                                        |   |                            - |   |                 240,000            |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| Other      Assets                                                                                  |   |                                                                                                                                                                |   |                                                                                                               |
|         Prepaid      Loan  Cost - Long Term, Net |   |                 636,539                                                             |   |                 880,650            |
| Deposits                                                                                           |   |                   15,053                                                  |   |                   14,453 |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| Total      other assets                                                                            |   |                 651,592                                                             |   |                 895,103            |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| TOTAL      ASSETS                                                                                  |   |  $         4,946,956                                                                                              |   |  $         6,264,882                                             |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |

----

| Z      TRIM HOLDINGS, INC.                                                                                        |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|-------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| CONSOLIDATED      BALANCE SHEETS                                                                                  |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| JUNE  30, 2009                                                                                          |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| LIABILITIES      AND STOCKHOLDERS' EQUITY (DEFICIT)                                                               |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   | (Unaudited)                                                                                                                                         |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   | 6/30/2009                                                                                                                                           |                                                                   | 12/31/2008                                                                                                                                                          |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Current      Liabilities                                                                                          |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Accounts      payable                                                                                             |                                                                   |  $            740,715                                                              |                                                                   |  $            544,325                                                                              |
| Accrued      expenses and other                                                                                   |                                                                   |                 463,878                                             |                                                                   |                 335,718                                                             |
|         Derivative      Liabilities                                       |                                                                   |             4,540,442                                                                   |                                                                   |                            - |
| Total      Current Liabilities                                                                                    |                                                                   |             5,745,035                                                                   |                                                                   |                 880,043                                                             |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Long      Term Liabilities                                                                                        |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
|              Convertible      Notes Payable, Net |                                                                   |             3,019,784                                                                   |                                                                   |             2,559,736                                                                                   |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Total      Long Term Liabilities                                                                                  |                                                                   |             3,019,784                                                                   |                                                                   |             2,559,736                                                                                   |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Total      Liabilities                                                                                            |                                                                   |             8,764,819                                                                   |                                                                   |             3,439,779                                                                                   |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Stockholders'      Equity (Deficit)                                                                               |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Common      stock, $0.00005 par value; authorized 200,000,000                                                     |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| shares;      issued and outstanding 2,754,952 and                                                                 |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| 2,597,879      shares, June 30, 2009 and December 31, 2008                                                        |                                                                   |                         138 |                                                                   |                         130                 |
| respectively                                                                                                      |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Additional      paid-in capital                                                                                   |                                                                   |           75,727,272                                                                              |                                                                   |           74,487,848                                                                                              |
| Accumulated      deficit                                                                                          |                                                                   |         (79,545,273)                                                                                        |                                                                   |         (71,662,875)                                                                                                        |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Total      Stockholders' Equity (Deficit)                                                                         |                                                                   |            (3,817,863)                                                                       |                                                                   |             2,825,103                                                                                   |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |
| TOTAL      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                         |  $         4,946,956 |                                                                                                                                                |  $         6,264,882 |
|                                                                                                              |                                                                   |                                                                                                                                                |                                                                   |                                                                                                                                                                |

----

|                                                       |   |   | Three      months ended                                                                                             |   | Six      months ended                                                                                         |
|------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|
|                                                       |   |   | June      30,                                                                                                       |   |                                                                                                          |   | June      30, |   |   |
| FOR      THE SIX MONTHS ENDED JUNE 30                      |   |   | 2009                                                                                                                |   | 2008                                                                                                          |   | 2009 |   | 2008 |
| REVENUES:                                                  |   |   |                                                                                                                |   |                                                                                                          |   |   |   |   |
|   Products                                       |   |   |  $     162,960                                                                        |   |  $     171,863                                                                  |   |  $     290,929 |   |  $     238,307 |
|   Services                                       |   |   |                   -       |   |                   - |   |                   - |   |                   - |
|     Total      revenues                |   |   |         162,960                                                             |   |         171,863                                                       |   |         290,929 |   |         238,307 |
|                                                       |   |   |                                                                                                                |   |                                                                                                          |   |   |   |   |
| COST      OF REVENUES:                                     |   |   |                                                                                                                |   |                                                                                                          |   |   |   |   |
|   Products                                       |   |   |         402,040                                                             |   |         633,621                                                       |   |         752,657 |   |      1,206,735 |
|     Total      cost of revenues        |   |   |         402,040                                                             |   |         633,621                                                       |   |         752,657 |   |      1,206,735 |
|                                                       |   |   |                                                                                                                |   |                                                                                                          |   |   |   |   |
| GROSS      MARGIN                                          |   |   |       (239,080)                                                                       |   |       (461,758)                                                                 |   |       (461,728) |   |        (968,428) |
|                                                       |   |   |                                                                                                                |   |                                                                                                          |   |   |   |   |
| OPERATING      EXPENSES:                                   |   |   |                                                                                                                |   |                                                                                                          |   |   |   |   |
| Selling,      general and administrative                   |   |   |         925,551                                                             |   |      1,402,897                                                                       |   |      2,668,337 |   |      2,729,797 |
| Impairment      of intangible assets                       |   |   |                   -       |   |                   - |   |                   - |   |         136,668 |
| Amortization      of intangible assets                     |   |   |                   -       |   |                   - |   |                   - |   |             3,333 |
| Loss/(Gain)      on asset disposals, net                   |   |   |           (2,500)                                                 |   |                  13      |   |         117,188 |   |          (74,987) |
|     Total      operating expenses      |   |   |         923,051                                                             |   |      1,402,910                                                                       |   |      2,785,525 |   |      2,794,811 |
|                                                       |   |   |                                                                                                                |   |                                                                                                          |   |   |   |   |
| OPERATING      LOSS                                        |   |   |    (1,162,131)                                                                                       |   |    (1,864,668)                                                                                 |   |    (3,247,253) |   |     (3,763,239) |
|                                                       |   |   |                                                                                                                |   |                                                                                                          |   |   |   |   |
| OTHER      INCOME (EXPENSES):                              |   |   |                                                                                                                |   |                                                                                                          |   |   |   |   |
| Rental      and other income                               |   |   |                505                       |   |             6,800                                 |   |             3,606 |   |           17,663 |
| Interest      income                                       |   |   |                    7 |   |             1,772                                 |   |                226 |   |           15,608 |
| Interest      expense                                      |   |   |           (3,172)                                                 |   |           (5,854)                                           |   |           (3,227) |   |            (5,889) |
| Interest      expense - Note Payable                       |   |   |       (486,065)                                                                       |   |         (17,154)                                                      |   |       (889,200) |   |          (17,154) |
| Derivative  (loss)      gain                     |   |   |       (956,190)                                                                       |   |                   - |   |    (1,420,991) |   |                   - |
| Settlement      (loss) gain                                |   |   |       (195,608)                                                                       |   |         133,071                                                       |   |       (195,608) |   |           32,891 |
|     Total      other income (expenses) |   |   |    (1,640,523)                                                                                       |   |         118,635                                                       |   |    (2,505,194) |   |           43,119 |
|                                                       |   |   |                                                                                                                |   |                                                                                                          |   |   |   |   |
| LOSS      FROM CONTINUING OPERATIONS                       |   |   |  $(2,802,654)                                                                                                  |   |  $(1,746,033)                                                                                            |   |  $(5,752,447) |   |  $      (3,720,120) |
|                                                       |   |   |                                                                                                                |   |                                                                                                          |   |   |   |   |
| NET      LOSS                                              |   |   |  $(2,802,654)                                                                                                  |   |  $(1,746,033)                                                                                            |   |  $(5,752,447) |   |  $      (3,720,120) |
|                                                       |   |   |                                                                                                                |   |                                                                                                          |   |   |   |   |
| Net      Loss per Share from continuing operations         |   |   |                                                                                                                |   |                                                                                                          |   |   |   |   |
|  -      Basic and Diluted                             |   |   |  $         (1.03)                                                 |   |  $         (0.69)                                           |   |  $         (2.15) |   |  $          (1.47) |
| Net      Loss per Share - Basic and Diluted                |   |   |  $         (1.03)                                                 |   |  $         (0.69)                                           |   |  $         (2.15) |   |  $          (1.47) |
|                                                       |   |   |                                                                                                                |   |                                                                                                          |   |   |   |   |
| Weighted      Average Number of Shares Basic and Diluted   |   |   |      2,732,380                                                                             |   |      2,514,351                                                                       |   |      2,677,269 |   |      2,526,824 |
|                                                       |   |   |                                                                                                                |   |                                                                                                          |   |   |   |   |

----

| Z      TRIM HOLDINGS, INC.                                                                                             |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
|------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| CONSOLIDATED      STATEMENTS OF CASH FLOWS                                                                             |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| FOR      THE SIX MONTHS ENDED JUNE 30                                                                                  | 2009                                                                                                                                                                                                    |   |  2008                                                                                                                                                                                              |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      FLOWS FROM OPERATING ACTIVITIES                                                                              |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Net      loss                                                                                                          |              $   (5,752,447)                                                                                            |   |            $     (3,720,120)                                                                                            |
| Adjustments      to reconcile loss from continuing operations to                                                       |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| net      cash used in operating activities:                                                                            |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Depreciation                                                                                                           |                      520,096                                                                   |   | 478,982                                                                                                                                                                                                 |
| Loss      on asset disposal                                                                                            |                      117,188                                                                   |   |                        40,727                                                        |
| Change      in  Derivative Liability, net of bifurcation                                                     |                   1,420,991                                                                                   |   |                                  - |
| Provision      for bad debt                                                                                            |                                  - |   |                           9,062                                       |
| Stock      based compensation - options                                                                                |                      554,591                                                                   |   |                      249,711                                                                   |
| Stock      based compensation - warrants                                                                               |                      378,667                                                                   |   |                                  - |
| Shares      and Warrants issued for services                                                                           |                                  - |   |                      230,000                                                                   |
| Shares      issued for director fees                                                                                   |                        46,200                                                        |   |                                  - |
| Shares      and Warrants issued for debt                                                                               |                      195,608                                                                   |   |                                  - |
| BCF      Amortization                                                                                                  |                      460,048                                                                   |   |                        17,154                                                        |
| Loan      Cost Amortization                                                                                            |                      244,111                                                                   |   |                                                                                                                                                                                                    |
| Impairment      of intangible assets                                                                                   |                                  - |   |                      136,668                                                                   |
| Stock      and warrant settlements                                                                                     |                                  - |   |                        28,901                                                        |
| Non-cash      settlements                                                                                              |                                  - |   |                    (111,792)                                                                             |
| Changes      in operating assets and liabilities                                                                       |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Accounts      receivable                                                                                               |                      136,262                                                                   |   |                    (116,708)                                                                             |
| Inventory                                                                                                              |                        24,360                                                        |   |                        58,454                                                        |
| Prepaid      expenses and other assets                                                                                 |                       (44,082)                                                            |   |                        57,043                                                        |
| Increase/(Decrease)      in:                                                                                           |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Accounts      payable and accrued expenses                                                                             |                      901,550                                                                   |   |                    (152,811)                                                                             |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      USED FOR OPERATING ACTIVITIES                                                                                |                    (796,857)                                                                             |   |                 (2,794,729)                                                                                             |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      FLOWS FROM INVESTING ACTIVITIES                                                                              |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Purchase      of Fixed Assets                                                                                          |                    (313,205)                                                                             |   |                       (28,818)                                                            |
| Proceeds      from asset disposals                                                                                     |                        92,500                                                        |   |                              200                       |
| CASH      USED FOR INVESTING ACTIVITIES                                                                                |                    (220,705)                                                                             |   |                       (28,618)                                                            |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      FLOWS FROM FINANCING ACTIVITES                                                                               |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Net      proceeds from sales of stock                                                                                  |                                  - |   |                   1,105,874                                                                                   |
| Borrowing      on debt                                                                                                 |                      464,500                                                                   |   |                                                                                                                                                                                                    |
| Exercise      of options and warrants                                                                                  |                           4,365                                       |   |                                  - |
| CASH      PROVIDED BY FINANCING ACTIVITIES                                                                             |                      468,865                                                                   |   |                   1,105,874                                                                                   |
| Net      cash and cash equivalents provided (used) by discontinued      operations                                     |                                  - |   |                              484                       |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| NET      (DECREASE)INCREASE IN CASH                                                                                    |                    (548,697)                                                                             |   |                 (1,716,989)                                                                                             |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      AT BEGINNING OF YEAR                                                                                         |                      592,696                                                                   |   |                   2,436,580                                                                                   |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      AT THE QUARTER ENDED JUNE 30                                                                                 |                       $ 43,999                                                       |   |                   $   719,591                                                                  |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Supplemental      Disclosures of Cash Flow Information:                                                                |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Interest      paid                                                                                                     |                                  - |   |                           5,841                                       |
|         Common      Stock issued for settlement-Zaghi                          |                                  - |   |                      840,000                                                                   |
|         Transfer      from Deposit on Fixed Assets to Construction in Progress |                      240,000                                                                   |   |                                  - |
|         Cummulative      Effect - Adoption of EITF07-5                         |                   2,129,951                                                                                   |   |                                  - |
|         Convertible      Debt issued for Settlement of AP                      |                      525,000                                                                   |   |                                                                                                                                                                                                    |
|         Discount      on Convertible Debentures                                |                      989,500                                                                   |   |                                                                                                                                                                                                    |

----

----

----

|                             | 6/30/2009                                                                                     |   | 12/31/2008                                                                    |
|----------------------------------|-----------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|
| Raw      materials               |  $      28,708                                             |   |  $      35,471                             |
| Packaging                        |                548 |   |             1,114 |
| Work-in-process                  |             8,131                 |   |             1,879 |
| Finished      goods              |        112,269                                             |   |        133,649                             |
| Other      Inventory             |             8,956                 |   |          10,858                  |
|   Total      inventory |  $    158,612                                                        |   |  $    182,971                                        |

|                                             |   | 6/30/2009    |   | 12/31/2008   |
|--------------------------------------------------|--------|--------------|--------|--------------|
| Production,      engineering and other equipment |   | $5,657,062   |   | $5,301,635   |
| Leasehold      improvements                      |   | $2,801,053   |   | $2,801,053   |
| Office      equipment and furniture              |   | $587,565     |   | $598,860     |
| Computer      equipment and related software     |   | $140,246     |   | $140,245     |
| Construction      in process - Equipment         |   | $0           |   | $53,361      |
| Construction      in process - Leasehold Impr    |   | $21,780      |   | $18,855      |
|                                             |   | $9,207,706   |   | $8,914,009   |
| Accumulated      depreciation                    |   | ($5,322,849) |   | ($4,852,573) |
| Property      and equipment, net                 |   | $3,884,857   |   | $4,061,436   |

| Depreciation      expense was $266,946 and $260,994 for the three months ended June 30, 2009      and June 30, 2008 respectively.  Depreciation expense was      $520,096 and $478,982 for the six months ended June 30, 2009 and June 30,      2008 respectively.  |   |   |   |   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
|                                                                                                                                                                                                                                                                               |   |   |   |   |   |

----

|                                    | 6/30/2009                                                                                                              |   | 12/31/2008                                                                                               |
|-----------------------------------------|------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------|
| Accrued      legal                      |  $                  624 |   |  $                - |
| Accrued      payroll and taxes          |                 20,145                 |   |            31,795                                 |
| Accrued      settlements                |                 42,500                 |   |          100,000                                            |
| Accrued      Interest                   |               309,130                            |   |          124,090                                            |
| Accrued      expenses and other         |                 91,479                 |   |            79,832                                 |
| Total      accrued expenses & other |  $           463,878                                       |   |  $      335,718                                                       |

----

|                              |   | June      30, 2009 |             | December      31, 2008 |   |
|-----------------------------------|--------|--------------------|------------------|------------------------|--------|
|                              |   |               |             |                   |   |   |   |
| Common      stock warrants        |   |               | 1,868,534        |                   |   | - |   |
| Embedded      conversion features |   |               | 2,671,908        |                   |   | - |   |
| Total                             |   |               | $      4,540,442 |                   | $      | - |   |

----

|                                  |   | 6/30/2009                                                                                                                 |                                                                                      |   | 12/31/2008                                                                                                                |                                                                             |
|---------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------|
|                                  |   |                                                                                                                      |             Weghted           |   |                                                                                                                      |            Weghted        |
|                                  |   |                Number                          |             Average           |   |             Number                                            |             Average  |
|                                  |   |                 of                        |             Exercise          |   |             of                                                |             Exercise |
|                                  |   |                 Shares                    |               Price |   |             Shares                                            |             Price    |
| Outstanding      at beginning of year |   |         431,073                                                                   |  $32.04                                                                              |   |         553,184                                                                   |  $  31.20                                                         |
| Granted                               |   |      1,320,000                                                                                   |  $       0.45                                                                   |   |             3,333                                             | $         8.10                                                    |
| Exercised                             |   |                     - |  $        -                                  |   |                     - |  $          -             |
| Expired      and Cancelled            |   |       (324,178)                                                                             |  $31.36                                                                              |   |       (125,435)                                                                             |  $  27.71                                                         |
| Outstanding      at end of period     |   |      1,426,895                                                                                   |  $  2.97                                                                   |   |         431,082                                                                   |  $  32.04                                                         |
|                                  |   |                                                                                                                      |                                                                                      |   |                                                                                                                      |                                                                             |
| Exercisable      at end of period     |   |      1,400,645                                                                                   |  $  3.63                                                                   |   |         429,415                                                                   |  $  32.13                                                         |

|                                                | 2009                                                                                |
|-----------------------------------------------------|-------------------------------------------------------------------------------------|
| Weighted      average fair value per option granted |  $  0.43                                                             |
| Risk-free      interest rate                        |            1.99      - 2.99% |
| Expected      dividend yield                        | 0.00%                                                                               |
| Expected      lives                                 |  1      - 2.5                                                                  |
| Expected      volatility                            | 130.25%                                                                             |

|                  |   |                                                                                                                                                                |   |         Weighted                                                      |   |                                                                                                                                               |   |                                                                                                                                                                |
|-----------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |   |                                                                                                                                                                |   |         Average                                                       |   |         Weighted                                                                                           |   |                                                                                                                                                                |
| Range      of         |   |                                                                                                                                                                |   |         Remaining                                                     |   |         Average                                                                                            |   |                                                                                                                                                                |
| Exercise              |   |             Options                                                                                     |   |         Contractual                                                   |   |         Exercise                                                                                           |   |     Options                                                                                                                                     |
| Prices                |   |                   Outstanding                                                                           |   |         Life                                                          |   |         Price                                                                                              |   |     Exercisable                                                                                                                                 |
| $0.01-$1.50           |   |                     1,320,000                                   |   |                4.9                 |   |                    $       0.45                |   |                        1,293,750                                               |
| $1.51-$3.00           |   |                            - |   |                   - |   |                   $           - |   |                            - |
| $3.01      & over |   |                106,895                                                                   |   |                1.2                 |   |  $       3.18                                                                                              |   |                106,895                                                                   |
|                  |   |             1,426,895                                                                                   |   |                4.5                 |   |  $       0.66                                                                                              |   |             1,400,645                                                                                   |

----

|        Year Ended | Rentals |
|------------------------|---------|
|                   | 2009    |                   286,415 |
|                   | 2010    |                     65,919 |
|                   | 2011    |                            - |
|                   | 2012    |                            - |
|                   | 2013    |                            - |
|                   |    |  $    352,334 |

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